The policy was sold so the agent could get their commission. There was no credible justification for it. Worse, there was no record showing that I ever signed any paper authorising the charges.
When I talked to the investigation department, they said that off the record, between you and me, record keeping is incredibly poor, and my case was only unusual because I'd questioned the payments - and most people don't.
My partner is going through something similar, but the paper trail in her case is even more tenuous. The only justification on file for thousands of pounds in payments collected from the 90s onwards is a mortgage application she made a few years ago - and didn't even go ahead with.
This is on top of a national Payment Protection Insurance (PPI) scandal which forced insurance companies and banks to return billions of pounds.
Somehow this never seems to be labelled criminal fraud. It's always "Mistakes were made..." and no one is ever personally responsible.
So honestly, I'm finding it hard to be sympathetic to the poor exploited insurers in situations like this.
I once didn't fill in my Dutch VAT taxes (0 euro's by the way, it was an administrative formality) and I was fined.
Another time the tax authorities didn't pay me money back for almost 9 months, and it was only because I found out and they forgot because of some administrative mishap.
However, I'm not allowed to fine them.
I find it weird, because I'm pretty sure the mistake is similar in behavior and intention. Yet, I have to pay up and they don't.
They pay 0.5% (which is better than most of my bank accounts) on all sums they owe as a result of their own mistake rather than either your mistake or some third party screwing up (e.g. your employer fat-fingers paperwork causing you to pay say £1000 extra tax, you don't notice for two years, then you point out the mistake, HMRC are happy to fix it but won't pay you 0.5% interest on the mistake because it wasn't their fault)
Over-booking of flights used to be a huge problem back in the 90's and earlier. You'd get on the plane, someone would be in your seat already, and that's when you found out you didn't get to fly on that flight.
Airlines figured out this pissed people off and started counting tickets before letting people onto flights. If they had too many people waiting to board a flight, they would make an announcement and start offering free stuff to people willing to be bumped or take a later flight (this still happens in rare circumstances today but used to happen on most flights for a few years).
I remember listening to a gate agent threatening to call the cops on a college age guy who was picking up his third free ticket of the week for accepting being bumped off an Oakland to Las Vegas flight. He'd apparently figured out that that flight was always overbooked (which wouldn't have taken a rocket scientist given the high rate of overbooking at the time), and the only reason he got caught was the same agent kept getting assigned to work the counter for that flight often enough to remember his face.
Interestingly, I also flew on a nearly empty flight once during that era. The pilot came on the loud speakers and said "the next time you are wondering why flights are over booked, remember this flight - this plane was booked to 120% capacity (or some other number well over 100%) for this trip."
Got caught doing what exactly? Booking tickets on a flight?
If he wasn't using fake names or anything, it sounds like he was just trading his time for free airfare.
The most common reason I've seen is a large corporation cancelling or rescheduling an all-hands / quarterly meeting that everyone above a certain level (e.g. directors / VPs) from non-HQ offices travels to HQ to attend.
For an Oakland to Las Vegas flight, I'd guess a conference, music festival, or sporting event was cancelled.
Statistics generally (there are exceptions of course) makes very broad assumptions about independence and random selection of your samples.
For a group of people as correlated as having the same destination at exactly the same time using the same airplane I would be very wary of applying any statistics at all, even ignoring the possibility of a large group.
Hundreds of otherwise independent people can decide to not show up simultaneously due to terrorist attacks, corona, a cheaper alternative, a conference being cancelled, etc.
I think they don't overbook as much as in the US. They try to avoid bumping off passengers, because the cost of doing it is much higher. They can't just give you an upgrade ticket. They have to reimburse all occurring cost and they have to pay an additional 250-600 EUR compensation depending on the length of the flight.
I've seen airlines offering compensation worth well more than these minimums, however. Anecdotally it seems fairly common to get hundreds of dollars for a relatively short domestic flight.
Also, the ones they do bump off are the standbys and reduced fare, which is why you don't often hear about fully paying passengers being forced to take another flight - and in any case, if they're still over capacity, the promises of free upgrades and money mostly result in enough volunteers to prevent that from happening.
I'm not sure about any differences in US regulations vs EU regulations for this issue though.
I hope the cops did nothing?
It was the airline's fault for overbooking and they offered bump compensation and the guy took it. It sounds legal to me. If the airline wanted to avoid this they could easily have done that by not overbooking.
> The ones they checked with now have a clause that says they will not be responsible for any payout should the insured, at the time of buying, already knows or reasonably deduces that the flight can be delayed anytime.
What kind of clause is that?
Perhaps we should not rush to finely parse language that has gone through a double translation: from legaleese to reporter and from Chinese to English.
But "reasonably deduces"... that can be used in any such case where mass payouts are a likely outcome. If I can "reasonably deduce" a payout will be needed than so can the insurance company. Under these conditions accepting my insurance purchase should be seen as the company committing fraud. They accept a payment knowing the customer can never collect.
I hope they are reserving this clause for such obvious fraud cases where they can prove prior knowledge and intent. Like the case of this woman who even created fake identities to carry out the plan. Otherwise I see them being stuck in court forever either trying to prove that a random customer had some sort of insight that they didn't despite literally being their job and investing (tens of) millions in this. Or trying to prove that they didn't knowingly sell a policy with the expectation that they will never provide the payout, which is misrepresentation of the service at the very least.
So it's not like the insurance company can say "you should have cancelled the night before because everyone could see the storm coming".
If a regular consumer can "reasonably" deduce (using logic, not some "illegal" insider knowledge) at the time of buying the insurance policy that the flight may be cancelled then the insurance company employing experts and very accurate statistical models can more than reasonably make the same deduction.
Now since we agree that both parties deduced the flight will be cancelled but the company still went ahead and took the money for the insurance contract, this can only be fraud. The company took the money under false pretenses since they implicitly know even before the transaction that the claim is null and void under the "reasonable deduction" paragraph.
I get why the first one is unacceptable but the wording in their agreement fits the second one.
That doesn't mean there's no grey area, though. Is it unreasonable to buy tickets and insurance under an assumed identity? Probably, but part of getting your day in court having the ability to suss this out.
Most jurisdictions won't enforce a contract entered in bad faith.
I'm no lawyer, but I would guess the hard part is detecting this behavior and/or getting the money back, not so much denying the payments.
(Though flight insurances probably don't have much infrastructure for fighting fraud, as there is few ways to do insurance scams)
What? What exactly is bad faith here?
How is buying insurance on things you expect to fail any different than, say, buying options on the stock market, or some other form of intelligent betting?
You have expectation X, you find a third party that disagrees and has expectation Y, and agree to make a bet on the outcome with odds relative to X:Y. If your assessment of the situation was closer to the truth than the other party, you can stand to make money.
The assumptions of the insurance company is that they have superior models and can amortize losses among many people and thus charge only a small margin. They don't always have the best models though,
and I really don't see how calling them on it is 'bad faith'.
Insurance, unlike options on equity stock or indexes, require an insurable interest. The pricing of insurance assumes that the buyer of insurance would rather not use the insurance policy; the options contract on stock makes no such stipulation. They are a bit similar in practice but both are structured, regulated contracts and are defined differently.
This lady did not have an "insurable interest" in the flights she was purchasing insurance on, since she did not actually intend to go on on the flight (she bought the insurance to profit from the insurance). Had she bought an "option" and not "insurance" on the flight, fraud maybe would not be in play. However, expect an "option" to be priced differently.
1. you believe you are at higher risk than the typical person buying the insurance (or more practically, that [cost of insurance] < [payout amount] * [likely of payout]).
2. the outcome you're insuring against would otherwise be financially ruinous (e.g. life insurance on family breadwinner, homeowners' insurance on expensive house)
I pretty much pay them just so I don't have to experience the social ramifications of telling people I didn't have home insurance if something did happen.
Varying levels of deductible choices hard code this notion even further into the system. If you're farther from zero-bound worries you can essentially buy less insurance with a high deductible.
When such a contract is made in advance knowledge of likely occurrence of the event, the risk is fully shifted over to the insurer. Thus in absence of shared risk this subverts the contract into an unequivalent monetary transaction, which reasonably amounts to fraud.
Similarly, if there's an advanced knowledge from the insurer on almost certain unlikelyhood of the event, then it's defrauding the policy holder of their premium.
So the insurers must pay off time to time to maintain the perceived fairness of contracts. Meanwhile doing their best to balance their share of the risk... and most importantly price in the 'administrative overhead'.
In this case, continual purchasing of insurance on the flights likely to be delayed would be evidence you knew it was going to be delayed.
Without clear condition / clauses, it is possible that they'll deny valid claims by saying that the insured has already know beforehand. Maybe there are more specific information?
It's not an unreasonable one.
Sometimes, often in fact, it becomes pretty obvious a flight will be delayed but they just haven't bothered to officially announce the fact yet. Such as if the plane isn't even there because they are delayed on the previous leg, and boarding time is about to start. Or when the airport cancels all flights for an indeterminate time due to incoming bad weather and the airlines wait to update times because they don't know what to say yet.
European laws define mandatory compensations when a flight is delayed or cancelled. This starts after 30 minutes if I remember well and depends how long the delay is and how long (distance) the flight is.
Also, delay is measured on arrival time, not on departure time. Planes frequently depart late then arrive on time, because they fly faster to catch up.
It's the difference between buying flood disruption insurance because you operate in an occasionally flooded area, and moving your stock to wherever there's a flood warning. Particularly in this case, where the woman cancelled her expected on-time tickets because the tickets had no value to her except as a source of insurance payouts.
Consumer insurance is not exactly the same as stock options: it's not supposed to be a perfectly efficient market. Insurers are often operating under rules which prevent them from denying or repricing insurance due to relevant risk factors and likewise premium holders are usually bound by far more terms and conditions preventing them from taking actions which might change the value of their policy than stocks or futures markets.
If somebody thinks they are making money out of their insurance contract it is probably fraud or very close to.
If it is a particularly high premium line, and especially if there is a lot of competition, it's more likely that the underwriting profit will be kept minimal or even negative, as the investment profit is so much more lucrative. This is common in the car insurance lines of business, for example.
For retail insurers there are a lot of moving parts here, and they will often not hold much of the final risk, so can't make money from investment anyway. For example, the retailer (sometimes an underwriting agency) may be underwritten by some bigger insurer.
That insurer may have a quota share arrangement with another insurer (I'll take 10% of the risk, you take 90%) with a corresponding premium share.
At each level reinsurance is bought, sometimes on the whole portfolio of risks and sometimes on particular classes of risk or specifc policies, and the costs associated with the reinsurance are priced into the retail premium.
Additionally, when working in an intermediated market with brokers, there are often credit terms of up to 90 days where no payments are made. Anecdotally, it does seem like some brokers do make a large amount of their money on this float.
Adding it all together, there are two main numbers to track from an underwriting profit point of view - your loss ratio (claims incurred / earned premiums, often extended to include projections for future claims and premium for future insured periods) and your combined operating ratio (COR) which includes expenses.
There will be a loss ratio at which a line of business becomes profitable, and final premiums are often calculated by taking the expected losses and grossing up by this loss ratio. For individual accounts it might literally be that simple - "over the last 5 years this account has averaged claims of $100,000 a year, we need a 60% loss ratio so the premium should be $166,667." If there are extra reinsurance costs you might add those, and you might also add a loading for large infrequent losses that aren't captured in your underlying loss ratio (and another loading for catastrophes, a level above that).
The combined ratio needs to be under 100% to be 'underwriting profitable'. I've seen CORs as high as 105-110%, but typically those portfolios were being very closely monitored/remediated/exited. If there is a strong market the COR is allowed to drift higher, but when the market tightens so does the COR.
You know what the expected outcome is going to be and are securing an agreement deliberately in bad faith. That's not to say insurance companies are always good faith actors (oftentimes not), but it's a very one-sided information flow.
What about someone who notices that they are getting older and are starting to develop aches and pains and decides to start buying health insurance that they had avoided when they were younger because they seemed to have been made out of rubber back then?
That's exactly the reason the ACA made health insurance mandatory, to avoid that scenario which would require insurance companies to make the policies more expensive in order to compensate for the higher average age and worsening average health of the insured pool, which further incentivizes the avoidance, and so on, until we're right back in the same situation with a high-risk pool and unaffordable premiums.
Incidentally, that doesn't mean that avoiding health insurance if you are young and healthy with no dependents is actually a good idea at the outset, since many common health conditions like injuries from car accidents don't particularly discriminate by age.
Yeah, your first argument makes a lot more sense to normal situations, but mine was aimed at being an analogy to the example at hand from the article.
I think it's more like, you shouldn't buy fire insurance if you are having a bbq or similar. Or at least somewhere in the middle of these two statements.
Or well you should, but if you wilfully had your house burn down anyway to get insurance money, that's insurance fraud.
The article says the insurance companies have now closed the loopholes she exploited. To me, she deserves every dollar she made for making the insurance market more efficient. I'm sure those errors would have cost these companies much more than $400k over the long run.
Insurance is NOT a financial instrument. Insurance is supposed to be a safety mechanism that protects you if something bad happens.
We can think of insurance as a call and/or put option. Financially, they behave almost identically to options. But that's not the intended use for the product.
Where you see inefficiency, I see humanism. The company believes that its users wouldn't act like this, and for the most part... citizens do not commit large scale fraud involving 20+ fake identities.
Unless you are attempting to redefine the word insurance you are simply incorrect. Insurance is one of the most commonly used financial instruments in existence. If insurance was somehow not a financial instrument, it would not be insurance, but something else entirely.
These agreements were never meant to be traded between insurance companies and in most cases simply weren't. The only major exemption from this rule are for companies offering life insurance but they aren't allowed to offer regular insurance.
Instead of acting as financial instruments, insurance companies are required to have, on-hand, the necessary liquidity to pay-out enormous sums.
And everyone financially engineers insurance if they have anything resembling a free market.
Reinsurance in denmark: https://www.lexology.com/library/detail.aspx?g=654d1fd4-cffc...
First result for Denmark insurance swaps: https://books.google.com/books?id=XsbFBgAAQBAJ&pg=PA34&lpg=P...
Just because the insurance companies have higher capital requirements and treat customers differently doesn't mean it's not a financial instrument.
> Financial instruments are assets that can be traded. 
> Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. 
And my point about about life insurances being financial instruments:
> The asset classes are cash, vehicles, real estate, business, directly held equity, indirectly held equity, fixed income, pension equity, pension fixed income, cash value life insurance. 
> Certain life insurance contracts accumulate cash values, which may be taken by the insured if the policy is surrendered or which may be borrowed against. Some policies, such as annuities and endowment policies, are financial instruments. 
Regular insurance doesn't accumulate cash-value and therefor is not a financial instrument.
Here’s what the Financial Accounting Standards Board says:
Imposes on one entity a contractual obligation either:
A) To deliver cash or another financial instrument to a second entity
B) To exchange other financial instruments on potentially unfavorable terms with the second entity.
Conveys to that second entity a contractual right either:
A) To receive cash or another financial instrument from the first entity
B) To exchange other financial instruments on potentially favorable terms with the first entity.
Sounds like insurance fits in this category. I die next week, you pay me a million dollars, and I’ve only paid you $100 (or whatever small premium)
Furthermore, any agreement can be traded if someone sees an advantage in the trade and can rely on the agreement to hold.
Just because someone’s not doing the trade doesn’t mean it’s not trade-able. I guess it could be explicitly prohibited but even then I could see a Dane in the above insurance example securing a home loan because they have this insurance, and would be able to pay out upon death (for example) as a normal thing.
But that means you’re gambling, and so is the insurer. You’re making a bet on a certain outcome and so is the insurer. If you “win” that bet, e.g. the cargo on your ship was stolen by pirates and you insured against that, then your insurer “loses” and has to pay out. If nothing happened during the voyage though and you safely delivered your cargo, then the insurer “wins” and you “lose”, but what you’ve “lost” is a fraction of the value of the cargo which is better than the loss of the whole cargo. The insurer makes money by pooling these bets, betting that it will win more bets than it loses.
Insurance: the art of spending money now to avoid spending more money later
Seems like an open and shut thing -- insurance is a form of finance, whether consumer cooperatives, for-profit companies, or the government itself.
Unless we're debating the "instrument" part.
> Insurance is supposed to be a safety mechanism that protects you if something bad happens.
is a better vision of the way we should approach insurance IMO. My views are not to abolish capitalism at all, but am commenting on one of the pain points of its selfish tendencies.
Debt is certainly the most common and insurance is the one of the most common
That’s just not correct. There are plenty of insurance policies where people buy them as an investment with the hope of profiting off the payout when the insured asset has a loss. Credit default swaps being one such instrument.
Not saying that’s a good thing, but it certainly exists.
The scores of fake identities was clearly wrong but just “gaming the system” is generally not a crime. Look up the story about chocolate pudding and airlines.
Back when CDs paid a real return and credit cards gave free cash advances with 6 plus months no interest (neither of which exist anymore) had a lot of friends that would just use their good credit to get a bunch of cards, get “free” cash for 6 months, buy a CD with it (Sometimes from the same bank that gave them the free cash!) and just sit back and let the bank send them free money... then pay off the card when the CD matured after 6 months.
It was totally gaming the system but if the banks were dumb enough to let it happen then it’s sort of on them at some level.
Buying an insurance product - financial instrument or not - under a fake name most likely is a crime or at very least a disqualifying act. It's not "gaming the system" as you describe. Gaming would be a novel approach or changing the scale/magnitude of what a normal person would do; normal people don't fake their identity to buy insurance. Your CD example is gaming the system until I start apply for credit cards with a fake identity; that crosses a clear and obvious line.
Kills your credit score due to high utilization until the promotion is up and card is paid off though
Your last example is a contract of adhesion where the person setting the terms (and profiting from them on average) assumes responsibility for those terms.
Marge: "I'm sure your insurance will cover the house."
Maude: "Uh, well, no. Neddy doesn't believe in insurance. He considers it a form of gambling."
In The Big Short, for example, when they wanted to short the housing market, the structure that banks set up for them was effectively an insurance policy. They had to pay a huge fee every so often, which represented the equivalent of an insurance policy payment, but in the event that the value of the market dropped below some threshold, they were entitled to a payout...which is exactly what happened.
Just because it's gambling doesn't mean it's risky or not properly risk-assessed.
I personally think it's a bigger leap to argue that Social Security is a form of insurance, but I guess that depends on your political viewpoint when it comes to whether Social Security is a kind of bank account that holds your money in escrow or if it's a government-run social program that provides a guaranteed pension. There is still a kind of gamble going on, but it's more that you're gambling on the government upholding today's promises into the future (when you retire) and if that's immoral then so are many other things in life (such as money).
In this case, the risk of never needing insurance is balanced by the gain of whatever is insured if it is lost.
One could argue that this is decreasing risk in exchange for less gain, but that’s still using a tool for balancing risk and gain, aka gambling.
Go too deep and life is gambling.
For example, when someone buys an extended warranty on a new TV they are betting that it will break before a certain date (and after the factory warranty has expired). Most customers lose that bet and wasted their money.
Insurance is literally "hedging your bets". So getting the insurance isn't the gamble, you get insurance when you're about to gamble. So it enables gambling in a way that wasn't possible before.
Also, if Amish are allowed to opt out of social security, why can't Libertarians?
The Social Security opt-out is only possible for members of certain groups, most of which were special carve-outs added when Social Security was first implemented. One of those carve-outs is for individuals which are members of a religious group that has existed continuously since 1950 and have a religious objection to Social Security (those requirements only really match a handful of religions who lobbied for this right during the introduction of Social Security). However, anyone who wants to be excluded from Social Security must have never received Social Security benefits or made Social Security contributions and must be a member of some kind of pension scheme. Some police officers and some teachers are also excluded from Social Security due to different carve-outs but still qualify because those police officers' and teachers' unions have pension funds.
Libertarians don't have any carve-outs (nor do any other political group for that matter).
> How is a "pension scheme" different from "social security", in any way that matters?
There really isn't any difference (at least from the "is it gambling" angle). The main difference is that the pension schemes aren't government-run (unlike Social Security). It was a historical compromise (the groups lobbying against Social Security happened to be okay with being able to run their own pension schemes) which probably looks fairly strange in retrospect, but that's the way it is today.
Virtually all financial instruments are used this way. Insurance is about buying/selling a particular form of risk just like any other financial instrument.
The reason we treat it as one isn’t just because it can be modeled that way.
That said this seems like fraud. Using assumed names isn’t removing an efficiency in the market it’s being duplicitous.
I agree this seems like fraud, but why can't it both remove an inefficiency and be duplicitous? From the standpoint of the insurance company's financials this isn't any different from coordinating with 20+ individuals to execute the same scheme. If the latter removes an inefficiency it should follow that this woman did the same.
But it largely doesn’t matter from the pricing point of view. If fraud becomes a big enough risk it will get priced in.
That doesn’t mean it’s legal though. Car insurance is very efficient at dealing with fraudulent claims. Some get paid out some get prosecuted and every thing in between.
But there is a basic agreement that some law is going to be respected otherwise it’s just who has the biggest army. In my personal opinion using assumed names puts you over the line.
Yep, I'm totally with you that using assumed names puts you over the line. In my corner of the world she would probably have been fine legally in that regard with a bunch of shell corporations, but it still seems shady.
> If fraud becomes a big enough risk it will get priced in.
Identity fraud aside, the claims themselves aren't necessarily fraudulent though (my rationale: https://news.ycombinator.com/item?id=23529963). Whether they're fraudulent or not, a single malicious actor likely pales in comparison to the large number of people legitimately purchasing insurance for these kinds of flights. That risk _is_ already priced in, and low-risk flights necessarily have higher fees than they need in order to offset these kinds of losses (no matter whether they stem from poor models, fixed pricing, or something else).
How is a tool to manage financial risk NOT a financial instrument?
Tell that to insurance companies.
You will have an unpleasant surprise ...
Insurance is fundamentally a financial construct designed to manage risk. And if it's priced too low, it cannot function as a safety mechanism. Funds will be exhausted, and nobody will get their safety.
Where you see kindness, I see financial malfeasance of the sort that undermines the very goal of the thing.
More importantly, why does what is or is not a financial instrument according to your rather specific definition matter?
If you see humanism in underpriced flight insurance, do you see exploitation in overpriced flight insurance? Someone making that much money on well chosen flights means most likely other flights are very much overpriced for insurance.
One of the most useful things insurance does is expose real values for risk and put financial incentives on reducing risk behavior on both the holder and the owner/maker/operator or the insured asset.
For example, fire sprinklers and renters insurance. The owner of the unit is motivated to have sprkinklers present and in working order to lower the total cost of the apartment (insurance would have higher premiums without), the renter wants to pay lower premiums so they will insist they are installed or look elsewhere, and the insurance company will have a motivation to have a good sprinkler inspection program that finds out if they're really installed, done properly, and maintained in a way that provides actual risk reduction. Everybody wins as long as the insurance price is not just "humanitarian" but actually reflects the real risk.
"Financially, they behave almost identically to options. But that's not the intended use for the product."
It is absolutely the 'intended purpose'.
It just so happens, for some products, there is a 'humanist element' i.e. fire/life/home, but it's still a financial instrument.
I advocate government provided universal healthcare. That cost is just table stakes for a civil society.
Insurance is more properly relegated for elective decisions, where a person's interests are not (yet) universally shared, and they want to hedge their risks.
Very few countries have the former (the UK famously does), and many societies would be considered civil have the latter.
It's the government's job to lift the floor, set standards, drive progress. There's "no one size fits all."
We will always need room for innovation, experimentation.
Sometimes top down, like ratcheting performance standards. https://www.vox.com/energy-and-environment/2019/5/31/1864690...
Sometimes bottom up, like the neighborhood buurtzorg clinics in the Netherlands. https://en.wikipedia.org/wiki/Buurtzorg_Nederland
Because better is better.
The insurance companies themselves treat their product as a financial instrument in almost all cases
They do not act very humanistic when denying claims for all manner of technical 6point font on page 186 of terms and conditions document of the policy that says they will only pay out if the event happened on the 8th Tuesday of the month under a full moon during a eclipse...
Today insurance seems more like a protection racket than actual risk mitigation, given that more and more insurance is required by law for a person to get it becomes less of a voluntary exchange where I pay a small amount to hedge my risk and more a mandated extortion for which I will likely get little value in. Granted that does not apply to travel insurance as it is not (yet) mandatory but the industry of insurance is impacted by these external factors
Just look at all of the excuses insurance companies are using to refuse to pay out on Business Interruption Insurance due to COVID-19, or when insurance companies refuse to pay out after large scale storms due to various technical justifications, or any number of 1000's of examples I could cite that highlights the unethical behavior of that industry.
No Insurance companies get exactly zero sympathy from me
(I'm not talking about trying not to pay legit claims that clearly are within the threshold) but the reason these boundaries are there is so they can accurately price the risk.
It would be much more expensive to get a policy that covered "everything" without the fine print, but you certainly can. It's just out of most people's price range.
That is not to say I think insurers are acting in good faith all the time, just that I empathize with the actual purpose of insurance and the complexity of the risk calculations for insurance actuaries.
For example I am from the Midwest, we get tornado's here and one of the routine ways that insurance companies try to get out of paying is to classify the damage as "strait line winds" because apparently if wind is traveling in a strait line insurance does not pay but if it moves in a circle then we have a winner.
My Insurance for Storm Damage should cover all storm damage not have these weird exclusion based on the type of storm
Insurance is like Microsoft Licensing, no one can understand it and no matter what you buy you do not ever have the "right" insurance
If I have Fire Insurance, it should cover me if my house burns down. if I have Pandemic Insurance it should cover me during a pandemic, if I have business interruption insurance it should cover me if my business is interrupted, etc etc etc
I understand that a policy can not cover "everything" but I also so not believe that the insurance company should be allowed to sell "Storm Damage Insurance" then proceed to fine print out many many many types of storms... That should be considered deceptive business practice if not fraud
We have a real problem with Truth in Advertising for Insurance (and many other industries). IMO we should be seeing billion dollar fines coming out of the FTC on a weekly basis if deceptive business practices were aggressively enforced as they should be, instead i can not recall the last time the FTC even investigated anyone... Probably was the "strongly worded letter" they sent to electronics manufacturers about their illegal void if removed stickers
In my mind, the insurance company neglected a particular outcome of their service, and she enacted the loophole. It’s their mistake for not catching it and they’ve now made sure it can’t happen again.
I agree with you that insurance, as a concept, isn’t a means of making money as this woman has treated it. I also think the notion of insurance isn’t as sacred: the company is providing a service not some fundamental right, so this woman isn’t necessarily in the wrong for taking advantage of a “bug”
How do you know this? This may be a pre-emptive strategy
Also, as mentioned in other comments: She didn't use fake identities, she booked on the behalf of family and friends.
Edit: The article details that part of the strategy employed was to attempt to get a refund for any flight that ended up not being delayed, which would probably qualify as fraudulent intent (I think? IANAL).
Free Advice: if you run afoul of the tax system, pay first and challenge later. You're likley to lose and the punative penalties can bury you.
Edit: Reading your comment again, maybe my statement was already implied.
Perhaps we should talk about what actually happened - this woman defrauding companies using fake identities - and not hypotheticals we're making up.
Both are equally illegal in most parts of the world. Intentionally muddying your identity to defeat mechanisms put in place to avoid abuse is fraud.
Contrary to what some people on HN seem to believe, most legal systems in the world don't look too kindly on people intentionally abusing contracts. If it can be shown you signed a contract knowing that your understanding of it differed from that of the other party with the goal of exploiting this difference of understanding, which is to say in bad faith, you are very likely to lose in court.
Actuaries spend their careers making these bets. That's why no insurance company will take a policy on a "sure thing".
If she had taken on a similar bet in a market where insurance policies were bundled and sold, instead of a "credit default swap" you'd have a "on-time default swap" and it would be completely legal.
But there isn't such a market, so she effectively made one for herself by using false identities and the arbitrage of being able to pick and choose when she would take her side of the swap.
The insurance industry wouldn't exist if that was true. The whole profit there comes from the bias for the insurer.
b) Can you give some specific examples? I'm using State Farm as a place-holder for "large insurance company". They had one really bad year recently where they "only" made 9 figures in net income.
Insurance companies are extremely profitable. Their losses in bad years are more than offset by gains in good years.
In other locations, insurances are not all about profit and reinsurance. Either they're public operated by the government, or they're private and have caps on how much they can charge compared to how much they return and they don't get to choose what they can cover or not.
I am pretty sure my last insurance was directly financing the government. I suppose it makes sense to store billions of euros long term (until a disaster) into dedicated government bonds, which benefits both the government and the company. That is to say, the money fits a larger purpose in the meantime, it's not all evil.
Such a bold statement
But the purpose of healthy gambling is to have fun, and the purpose of insurance is to pay a small amount in most future states of the world to avoid very bad outcomes in some future states of the world. These are both reasonable things to spend money on, but they're very different objectives.
If the person hadn't used false identities, but had still been arrested, that would be a more interesting case (more analogous to legal professional gambling). When false identities are used, it's clearly not above board.
I would assume that in such a case, the insurance company could refer to their terms-and-conditions, and then contest their obligation to pay out. I don't imagine it would be a criminal matter though. (Needless to say I'm not a lawyer.)
how come it's not fraud when insurance companies calculate the odds better than you, and yet it is fraud when you do it to the insurance companies?
There is no win or lose, if insurance is not gambling. If it is, then either side wins money with varying payout schedules.
Eh, I'm not sure that's really true, even.
Flight insurance -- at least, all of the flight insurance I'm familiar with -- is a fixed-cost product. I doubt it is so much that the insurance company couldn't create separate risk pools, from their own analysis, but that it doesn't make sense as a business.
Just like a stock market is undermined by insider trading, so insurance markets are undermined by fraud. Insider trading and fraud don't mean stocks or policies are mispriced. Insider trading and fraud are breaking the social contract of what the products are meant for, which is why they're illegal.
The article quotes:
> "she was able to receive relevant information beforehand that tells her if the flight was going to be delayed or cancelled."
Which sounds exactly like the insurance equivalent of insider trading. Buying insurance on something you already know is going to happen or not is fraud, plain and simple.
The insurance company had loopholes too, but the loophole that prevented the company from finding out sooner was that she got payment from the airlines directly, rather than the insurance company. That's not mispricing. She was arrested because she committed insurance fraud, plain and simple.
All three of these takes are pretty basic in their extreme ("we shall see (in court)," "capitalism," and "as long as the law absolves specifically me and people I like." Let's just play it out:
- Did she break some laws? Probably, and whoever broke the law most clearly will lose in court. We'll see what the judge says. Not sure if judges in China are impartial.
- But if she went to court, the insurance company is pretty rich so it will win. Also this is China. As a matter of who should win...
- I will never be an insurance company, even if I sometimes would like cheaper insurance I will never be on the wrong side of justice here, they're a bunch of scoundrels. What about all the ways they rob me?
Here you go, that's every legal perspective you're going to hear, from a commenter or journalist or whatever. Obviously what we want to know is HOW she did it.
If a hedge fund profits from predicting a corporate merger by tracking corporate jet flights, many people would say that's just them doing their research and being well informed. It's just obscure information, not insider information.
If this woman were trading flight insurance in the type of investment market that trades sophisticated insurance products like credit default swaps, her actions would be completely fair.
That she was doing it with retail products is less ideal, but not enough to clearly condemn her.
See also: the tax code. An accountant is just someone who rips off the government for you, to stop the government ripping you off so much. Because that's the game that's being played, as agreed by all players.
I've interacted enough with privatized insurance companies that if insurance wasn't a requirement or near requirement, I'd happily choose other options of mitigating risk. I much prefer self-insuring when feasible.
In a democratic country the law is supposed to be made by democratic process.
If you feel wronged, pillaging shops is not the way to solve it. The way to solve it is to get informed about what democracy is and cast your votes to get represented by people who will defend and strengthen democratic process.
Instead, what happens is people do not put enough or any due dilligence when casting their vote and the country gets represented by people who don't care about democratic process and only care about their partisan interests.
Get some good laws to make sure the best way to be profitable is to do good to your customers. Let's not be naive that trying to rip off the insurance company is an attempt to alleviate any of current problems (except for personal budget problems).
This is a lot like the difference between tax evasion (breaking letter of the law) and tax avoidance (breaking the spirit of the law).
It's also arguable that hedge funds exist to arbitrage the difference between the spirit of contractual arrangements (thou shalt not use pension funds to take out massive loans) and the letter of contractual arrangements (god only knows what you can and can't do with the company pension fund, but you can probably bribe the prosecutor to agree with you).
So, it's normal business practice for businesses and the wealthy to rip others off. The difference between them and us is they have better lawyers and are able to bribe prosecutors who have a different interpretation of the letter of the law.
Better laws are not going to level this playing field because the problem is largely how we practice law and all major parties support the status quo.
So while I agree with you in principle, this approach is insufficient.
> If you feel wronged, pillaging shops is not the way to solve it.
Sometimes, it is. For groups of people with little to no political power, protesting, rioting, and causing a bunch of social upheaval is definitely a productive way to force other people to consider and address their grievances. There are a lot of negative tradeoffs, of course, but there's no denying that it's an effective way to raise awareness.
Otherwise, we wouldn't even be having this discussion.
> "she was able to receive relevant information beforehand that tells her if the flight was going to be delayed or cancelled. Thereafter, she would purchase the tickets to the flights that are likely to be delayed or cancelled, before checking if there is any extreme weather along the route the flight is going to take that day."
Specifically, I'm not sure what the "before checking for extreme weather along the route" bit is supposed to mean, especially since it seems to imply that she checked for extreme weather after she already purchased the insurance? Something is odd with the grammar here. Furthermore, the quote never specifies what the "relevant information" actually was.
So... does this mean that she received inside information (e.g., from a former coworker) that the flight had been cancelled?
Or does it mean that she was looking at publicly-available information (e.g., weather data) to make the call?
I think the ethics and usefulness of some aspect of this are dependent on the answer to that question, and I'm not sure the article says definitively one way or another.
With that being said, I think the ethical problems with the fake identities seem more clear...
Google Flights will warn you if a flight is often delayed -- does that count as "receiv(ing) relevant information beforehand"?
The travel insurance wouldn't pay out if the flight was cancelled due to weather that was already known about.
Well, from the description of the events, it sounds like she didn't "know" the events were happen, just that they were more likely in a way that's not captured with a sufficient premium. That's not the same as e.g. insuring against your car getting dented, knowing you plan to dent it.
So what she did was more analogous to reasoning that, "Oh, man, people always seem to rear-end you when you're driving a red sports car. Since I drive one, I guess I'll pay extra for the no-deductible option for accidents involving getting rear-ended." She doesn't know she'll be one to get rear-ended, she didn't cause the rear-ending, she just recognizes it as being super-likely and thus a good deal.
With that said, I think there is a sense in which this is fraud. Generally, insurance requires you to have an "insurable interest" -- i.e. independent reason to value the insured thing -- to prevent the kind of asymmetric info/moral hazard situation that breaks their ability to model the risk and which leads to cases like this.
So the contract almost certainly had a clause like, "I am going on this flight for business or pleasure reasons" (or something more lawyer-screened). That would establish the insurable interest: the insured wants to go on this trip, and wants it to go well. So she'd be entering the contract on fraudulent terms if she bought the trips/insurance solely to profit off the payouts.
Still, I have to agree with the OP's comment. If someone is this good at assessing risk, you should hire them to tune your risk model. She did pretty darn good with far less info than the insurer had to work with!
I don't think that is a strong enough statement. She used multiple identities in attempt to keep police off of her trail. The analogy to the red sports car is helpful but lacking in this obviously nefarious effort in its innocence.
If you do well enough at a Casino, they can ask you to leave, and ban you from the premises, even if you're not doing anything illegal.
Only if the information she was using was non-public, e.g. if she were getting information from former colleagues, or had access to such data herself that a normal person would not have. Otherwise, it is not comparable to insider trading.
Is it though? Isn't this just arbitrage based on asymmetrical information (i.e. exactly what insurance companies do)? If she caused the flight to be delayed somehow, that would certainly be fraud, but so would anything the insurance company did to make the delay less likely without adjusting premiums.
Failure to disclose material facts renders the contract voidable. Insurance is not supposed to be a method for exploiting information arbitrage, and the law is formed explicitly on that basis.
It doesn't mean there can't be robust discussions about what the contract covers when particularly unexpected sets of facts come up.
She had to use 20 different identities do to this. That should answer your question.
The question wasn't "is this particular case fraudulent for any reason what-so-ever".
The question was "is buying insurance on something you already know is going to happen" plain and simple fraud?
The identity fraud isn't really relevant to that question at all.
FWIW I'm not aware of any law in the USA that makes it illegal to buy insurance when you know the policy will pay. Knowing more than the insurance company's actuaries is not fraud. Making false statements is fraud. Intentionally causing damage to collect insurance payments is fraud. But the hypothetical oracle who knows when the next flood/fire/car accident will hit due to divine inspiration is free to buy a relevant insurance policy the day before. AFAIK.
The insured has a duty to disclose everything that is or would be material to the insurer, even if that information is known only to the insured.
Fraud is entirely separate.
I wrote a super long comment below, but on a more fundamental level... how?
Especially for something like travel insurance. Anyone the average consumer gets to talk to about a travel insurance policy is going to be some call center jockey being paid on commission.
In fact, my insurance agent sold me a home insurance add-on for personal electronics. Their pricing didn't take into account the cost of the covered electronics. Replaced some very expensive hardware after (inevitable) failures. When I purchased the policy, I sent my agent and email pointing out that I has some super expensive electronics, expected short shelf life, and was pretty damn certain that the policy had positive expected value.
The agent straight up asked why I wouldn't buy the policy in that case!
That product was discontinued, of course. The insurance company tried to claw back one of their payments until I showed them my emails with their agent. But the fact that they even tried is... telling. And I'm just lucky they didn't press the issue, because I probably wouldn't have bothered going to court over a few hundred dollars in wasted payments.
There's a fundamental problem with trying to apply this sort of legal doctrine when most consumers are unsophisticated and don't have access to the same data as the insurer. The fact that we only ever get to talk to sales people compounds the problem.
a) I have a really, really, REALLY hard time understanding how hiring an army of PhDs to build highly proprietary risk models based on extremely expensive (or not-even-for-sale) datasets does not run a foul of uberrima fides. The doctrine only makes sense if it forbids both parties, not just the insured, from concealing information. If I were on a jury and the entire case hung on a reasonable man's interpretation of uberrima fides, I would have a hard time ever finding in favor of a modern insurer who's unwilling to share their models and data with the world. I mean, I might agree that the insured hid information. But I'd be nearly 100% confident that the insurer hid information.
Maybe in 1766 this principle made sense. It aint 1766 anymore.
b) In this case specifically, it would be quite hard to convince me that using publicly available information (e.g., weather reports and history of on time / delayed / cancelled flights) runs a foul of uberrima fides. You can't honestly expect me to believe the insurance company didn't have access to that information. It's equally hard for me to believe that an army of PhD actuaries didn't think to use that information to build their pricing models.
c) In the case of travel insurance, the doctrine has a really big bright-line problem. When I buy any ticket into or out of Boston during the winter months, I tend to buy travel insurance. I never buy travel insurance for flights into or out of Boston in the summer. That is clearly not fraud (or, if it is, that insurance product needs to be regulated out of existence). Now, what if I choose particular weeks? days? Where's the bright line?
d) Even supposing some obligation to share information, how in God's name am I supposed to inform the insurer that I estimate a flight will be almost surely be cancelled/delayed? Call up the 1-800 number? Because I know exactly how that would go: you'd get a first-line support person who's incentivized to sell policies. If I were running a similar scheme, I would definitely record myself calling up the insurance provider and point-blank stating "I think this flight will be cancelled, should I buy your insurance?" I guarantee the answer from the T1 support folks would be "yes, that's what it's for!". It seems totally unreasonable to assume bad faith of anyone who buys an insurance product with large positive expected value, especially when the insurance company is consistently making 10 figures in net income and is unwilling to engage in individual dialogs about "who knows what and when". If I can't get on the phone and talk to the actuary who built the pricing model to figure out if X is shared information, and if there's no list of check-boxes for me to look through in order to determine the same, and if the only company representative I can get access to is probably going to explicitly tell me to buy the policy, then... what the hell?
All of these things taken together: if I were on a jury and uberrima fides was the only reason to find in favor of the insurer, I would certainly do everything I could to sway my fellow jurors toward favoring the insured.
It seems like the right solution here is either a) more sophisticated pricing models, or b) some very clear and well-dilineated bounds on what information is/is not allowed to be used when purchasing travel insurance.
TL;DR: uberrima fides as a fuzzy legal doctrine seems... just... utterly impossible to apply to consumers. The relationship is fundamentally asymmetric, so the insurer should have a burden to explicitly ask about any relevant information (as is done for, e.g., health and life products). As a fuzzy doctrine for deciding on a case-by-case basis, this doctrine seems more relevant when the insurer and insured are more symmetric (e.g., insurance products aimed at large corporations, reinsurance, etc.).
(Of course identity fraud is a problem and this happened in China which doesn't use the same legal system, so this is all just a hypothetical conversation.)
Especially point A.
I used to work for a company that made health insurance claims benefit management software for first and third party administrators.
We would get requests from clients to do data mining in our databases that was well in excess of what was legal - one example included the fact that they were using genealogy services to build family trees and while they couldn't mine DNA for familial information, surely there was no harm in looking over your distant relatives for diagnosis codes, right?
"We can't do that".
"Why not, it's all in the databases, right?"
To the OP's point, that would oblige the traveler to notify their insurance if they got a text from the airline advising of delays, etc.
I'm extraordinarily jaded, but I'm fairly certain that one of the points of funding https://en.wikipedia.org/wiki/Federated_learning research is to side-step regulations in the finance and insurance industries.
Fortunately, in the US, laws about such things are quite strong at the moment. Stay tuned...
I don’t think that’s quite the right definition. I know I’m going to die. I bought whole life insurance. I have not committed fraud.
So technically you bought life assurance.
Perhaps consumer products are playing fast and loose with the technical terms because everyone says they want "insurance".
...but where there is a legal requirement for everyone in the area to "get insured" so that they don't have to lean on FEMA, and therefore in practice there's the opposite effect to the distribution of risk under public healthcare: rather than forcing healthy people who will get negligible benefit from their policies to get insured, such a requirement forces the insurance company to not be playing the lottery by offering only short-term policies that can maybe avoid a flood, but instead fixes them into always ending up covering a resulting flood (and therefore almost always defaulting in such cases and needing reinsurance coverage.)
While it sounds like insider trading, the situation here is quite a bit different. With insider trading, the company has very real and legitimate interest to keep some information private. Private from the general public, including their competition.
In this case, however, the airlines wouldn't have to share this info, apparently known inside the organization, with the general public, but with a single (set of) well defined actor(s). Also, I'm not 100% sure if publishing all the available information on possible delays and cancellations wouldn't benefit their business. (Though, if cancellations happen because of say not enough tickets sold for a flight, it may, because maybe that would induce a self-reinforcing process. Who would want to buy a ticket that is likely to be cancelled?)
If the pricing on insurance isn't dynamic, and gets within the weather window, you can use a 3-day prediction to place a high-likelihood bet that the flight will be cancelled.
Particularly if the insurance sticks with the ticket such that it can be moved if unused.
1. See a bad storm coming in.
2. Buy a fully refundable ticket for the day the storm is going to hit.
3. Buy insurance on that ticket.
4. Storm hits? Cash in.
5. Storm doesn't hit? Change the date on the ticket and the insurance moves with it.
what's the statute, or regulation, please. i'm not aware of that.
I fail to see how this is in any way fraudulent.
> In insider trading, famously, nobody quite knows what “legal” means. There is no statute defining or prohibiting insider trading, and the Securities and Exchange Commission rules on it are slim. But there are some judicially created rules that more or less make sense, that focus, roughly speaking, on whether insiders are using someone else’s information for their own gain. (A question that has nothing to do with market fairness, by the way.) But those rules are hazy and much disputed, and they aren’t written down in one place.
When a company employee is told something that's a secret and they trade on it or tell someone else then that's betraying that trust. If someone outside the firm figures it out, say from satellite photos or something like that, then it's not.
But why would I ever invest in a company if I knew that my gains would be stolen by people with secret knowledge?
If you allow insider trading, then you eliminate the incentive for outsider investing
And that means that we don't have public companies, only private companies.
Another way to think of it is that it creates an incentive for corporate espionage, so that outsiders may gain insider information.
In a world where corporate espionage is not itself illegal, the market would then be composed of private companies plus external "auditors" who are slipped in by all interested shareholders whether the private companies like it or not.
...which is oddly similar to governments performing intelligence on allies.
at that point of sale, the reality is the product sucks. but the market still reflects the price of a good product. so they know reality before everyone else, keep everyone else in fantasy, and trade at the fantasy price.
it further undermines the market bc no one will invest in companies who bail out with at the high price and leave them holding the bag. e.g. if someone asked me to buy 1k shares @ $100 each and i buy them: the product is a dud in R&D. the insiders all sell near the $100 price, the product is a dud in the market, share prices tanks to $30.
Next my "friend" asks me to invest I tell him to pound sand.
Better cancel all life insurance policies then.
Buying insurance on something you're going to cause to happen (cut down a tree so it falls on your car, leave flammable substances in a hazardous place in your home) is fraud.
Buying insurance on things you think are likely to happen isn't inherently fraud.
Or else it's a tax scheme where you only profit based on the tax-free nature of life insurance proceeds.
Do you have a citation for that law?
Yes, weather matters, and people can benefit by predicting it.
When I read that sentence in the article I immediately thought they closed it by optimising pricing or by challenging airlines. But no - as the next paragraph states - they closed it by adding a clause to the contract which basically forbids doing what this woman did. Go figure.
Any sensible person would just add a clause to the terms.
Intentions 100% matter when it comes to insurance fraud.
Couldn't agree more. She did nothing wrong in my book. She found a legal exploit, and exploited it. She was playing by the rules, she exposed a flaw, the flaw is now fixed. If she continues to do the exploit that would be a different story.
400k is small price to pay to close this kind of loophole.
So identity fraud is just totally fine as long as you're screwing over insurance companies?
Identity fraud aside, stuff like this drives up the cost of insurance for people who legitimately need it. It's clearly both illegal and immoral.
Isn't it legal to buy an airline ticket for someone else? I've never heard of that being called identify fraud.
>Identity fraud aside, stuff like this drives up the cost of insurance for people who legitimately need it. It's clearly both illegal and immoral.
People have made the argument that what she did was illegal based on laws specific to insurance fraud.
It's a tough to think about how companies, the stock market, banks, packaged securities, hedge funds, governments, and tax codes are all playing games with this but when a normal person does it they get thrown in jail.
It seems we're basically ok with the rich and powerful working all kinds of loopholes in the law but not normal people?
Doesn't seem so clear to me.
She's not buying tickets for someone else. She's buying them for herself using other people's identities. It's not the same thing, and this is covered in the article.
> It's a tough to think about how companies, the stock market, banks, packaged securities, hedge funds, governments, and tax codes are all playing games with this but when a normal person does it they get thrown in jail.
From the article:
> she was able to receive relevant information beforehand that tells her if the flight was going to be delayed or cancelled.
Last I checked insider trading was illegal (and immoral) in the stock market too.
I am saying that I don't agree with your prior statement that it was clearly immoral.
I see it as clouded when one hears of corporations, banks, hedge funds, governments, and other well funded entities getting away with all kinds of financial games to the detriment of the many, pretty much without consequence, and then when someone plays a similar game on a smaller scale it is wrong. That's the part I don't understand.
For example, the Panama papers were a big scoop because of all the rich people hiding their identities. That's legal, but doesn't seem clear if it's really moral. Companies do that to hide money from taxpayers, right?
It seems in the U.S. anything goes as far as making money especially if you are rich, corporations are duty bound to make profits regardless of morality, etc. Otherwise if you are not rich enough to play you need to know your place and follow the rules laid down for non-rich people. Has that compromised our morals? Probably. Is calling what this lady did immoral fair given everything else that goes on? That's what I wondered.
Dynamic pricing isn't free to implement, and raising prices to account for accurately for delays may result in policies never bought by travelers who find them too expensive or a clear signal to get a better flight instead.
The Nanjing police announced on Friday afternoon, June 12, that Li had, on multiple occasions, faked information related to the delaying of flights, and scammed huge amounts of money from insurance companies.
It was possible to game them because the contracts were not priced correctly.
We know the contracts were not priced correctly because it was possible to game them.
And to others, she was committing obvious fraud. Notably, to her, this was fraud, because she used fake identities to buy the policies.
The "I'm just an agent of libertarian market efficiency" excuse goes out the window once you start trying to hide your tracks.